How fast is China’s economy growing?

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China’s economy will take the spotlight next week as Beijing releases its fourth-quarter reading on gross domestic product — and markets are expecting an uptick in growth following a string of underwhelming readings.

Official data released on Friday showed Chinese consumer prices remained in deflationary territory for a third straight month in December, adding to the pile of challenges policymakers face. But even in the face of falling prices, tepid trade and continuing property market woes, a median forecast from economists polled by Bloomberg points to expectations of a year-on-year rise of 5.2 per cent for GDP in the fourth quarter.

That would be an improvement on growth of 4.9 per cent during the previous three months — partly helped by a flattering base effect thanks to a severe drop in economic activity in late 2023 during the final throes of China’s zero-Covid isolation. Some analysts have pencilled in an even larger jump for fourth-quarter growth, released on Wednesday, with Standard Chartered forecasting a rise of 5.8 per cent.

Economists at Natixis said the fourth-quarter reading was likely to ensure China could deliver annual growth in line with Beijing’s target level of “about 5 per cent”. But they warned that “maintaining the same growth target will be demanding for 2024 because there is less tailwind from base effect and the structural deceleration continues”. Hudson Lockett

Is UK inflation still falling?

UK inflation data on Wednesday will provide the latest clue to investors as they assess how quickly the Bank of England will cut interest rates this year.

The faster than expected easing of inflation to 3.9 per cent in November from 4.6 per cent in the previous month prompted markets to bet the BoE would cut more aggressively than previously expected.

Economists polled by Reuters forecast that the downward path of inflation slowed in December, with annual price growth easing to 3.8 per cent.

Samuel Tombs, economist at Pantheon Macroeconomics expects inflation to remain unchanged from November. That would still be well below the 4.6 per cent forecast for December by the Bank of England. But Tombs added that it would be unlikely to prompt a dovish pivot in the central bank’s language at next month’s policy meeting as “wage growth [is] currently still much too rapid for the Committee to tolerate indefinitely”.

Ellie Henderson, an economist at Investec, expects price growth to have eased to 3.5 per cent thanks to lower fuel prices and lower food inflation. She also forecast a decline in core inflation, which excludes food and energy, to 4.7 per cent in December from 5.1 per cent in the previous month. The consensus is a milder easing to 4.9 per cent.

Henderson expects “some bumps” on the road to the Bank of England’s 2 per cent target, with a rise in January because of base effects on energy, and risks heightened by the current crisis in the Red Sea.

However, an increasing number of economists expect gas prices, which have dropped significantly from November, to help bring inflation below 2 per cent by April. Among them is Andrew Goodwin, economist at Capital Economics who forecast inflation to settle just below 2 per cent from April onward. “The UK inflation outlook has been transformed by steep falls in oil and gas prices and the recent softening in core price pressures,” he said. Valentina Romei

What will retail sales tell us about the health of the US consumer?

December’s retail sales data, to be released on Wednesday, will offer insight into the health of the US consumer at a moment where the cost of borrowing for Americans is at its highest level in decades. 

Economists polled by Reuters forecast that the Census Bureau will report a 0.3 per cent increase in overall retail sales in December from the prior month, the same rate of increase as in November. Excluding the more volatile autos sector, retail sales for December are expected to have increased 0.2 per cent month over month, also unchanged from November. 

Consistent growth in retail sales would suggest that consumer spending remains strong in the face of elevated interest rates. 

“The cost of borrowing for consumers remains high and student loan payments restarted in October, but job growth is still strong and wage growth is still strong and higher incomes are ultimately the key driver for retail sales,” said Torsten Slok, chief economist at Apollo Global Management. 

Those sentiments were reiterated on Friday morning by JPMorgan CEO Jamie Dimon who said the bank expected US consumers to remain resilient. 

The retail sales figures will be part of the Fed’s calculus when it meets at the end of this month. While no change in interest rate policy is expected, a big surprise in retail sales data — particularly one showing that US consumers are far weaker than the consensus — could help make the case for earlier cuts in interest rates this year. Kate Duguid